Germany’s next government faces three big economic challenges By Reuters
Rene Wagner, Michael Nienaber
BERLIN (Reuters). Chancellor Angela Merkel led Germany through numerous crises in the last 16 years. However, she also leaves behind a mixed heritage and has failed to address structural issues that plague Europe’s biggest economy.
Many economists are unanimous in their belief that Germany is neglecting its public infrastructure, and has invested too little to digitise, despite an “golden decade” of continuous growth and budget surpluses.
According to the Ifo Institute, 2022 will see a record 5.1% growth in the economy. This is the highest rate of economic growth since 1990s’ German reunification boom.
This unusually high growth outlook can be attributed to the catch-up and recovery effects of the COVID-19 pandemic. Things aren’t always as bright underneath.
These three problems must be addressed by the coalition government if Germany hopes to not fall further behind in the next few decades.
Germany’s digitisation progress has been further hampered by Merkel. The Berlin-based European Center for Digital Competitiveness conducted a survey in September to find this. It was published just prior to the election.
Germany came 18th in the Group of 20 emerging and industrialized countries (G20). Only India and Japan did worse.
It is still a far cry from the government’s vision of providing fast internet access through a national network. In rural areas there is still a shortage of fibre optic cables.
Germany also has a slow pace in 5G mobile communication expansion, which can affect small- and medium-sized companies in some regions.
Finally, there is a shortage of IT experts in the country. Bitkom reports that there are 86,000 IT professionals currently unfilled. Bitkom reported that seven out of ten businesses complain of the lack of IT professionals and sixty percent of them expect this situation to get worse in the future.
Germany’s car industry, once a powerhouse, is having difficulty boosting production due to the lack of semiconductors.
Automakers and suppliers almost only depend on chips made by a handful of American chip manufacturers. Supply chain disruptions expose a weakness in Deutschland AG’s business model.
Germany’s economy has seen a boom thanks to globalization, but the world-wide web of supply chain connections that have turbocharged it is now showing signs of serious weakness.
According to an Ifo Institute survey, record numbers of industrial firms reported difficulty procuring raw materials and intermediates in September. That number leapt to an incredible 97% for car companies.
This year’s economic recovery is being hampered by a shortage of microchips, and other components. Policymakers and executives must rethink their supply chains and reduce dependence on just a few U.S. and Asian suppliers.
Global semiconductor production capacity is fully used. Experts predict that the short-term production expansion will not be significant.
France and Germany have teamed up with the European Union Executive to inject billions into aid programs for state construction and development.
Germany is ageing after decades of low birthrates and uneven immigration.
Merkel is facing a growing society with an ageing population and shrinking workforce. She has mostly ignored the calls for reform of the public pension system, and to make it more flexible in immigration policy.
Merkel’s first coalition government established rules that allow Germans to draw full state pensions without any cuts. This rule applies from 2006 and will gradually increase the age of eligibility for it, which is now 65-67 years.
An advisory panel composed of government economists suggested raising the threshold to 68 years by 2042. Olaf Scholz (the outgoing Finance Minister) has rejected the idea. Scholz is in pole position after narrowly defeating his centre-left Social Democrats to become Merkel’s chancellor.
The Institute for the World Economy, (IfW) predicts that Germany will reach its peak employment in 2023 when nearly 46 million workers are employed. The Institute for the World Economy (IfW) predicts that after this point, there will be more workers leaving than coming into it.
Germany is expected to lose approximately 130,000 workers annually starting in 2026.
A shrinking workforce will reduce economic output and normal capacity utilization by less than 0.9 per cent at 2026, which is sharply lower than the long-term average 1.4 percent.
Experts suggest that the solution to this problem is to have higher immigration, better child care services for parents to make them more active in the labor market and flexible work hours so they are kept working longer.